subscribe: Posts | Comments      Facebook      Email Steve

What’s a Classified Growth to do?

9 comments

The contradictions in the U.S. Bordeaux market as a result of the economic crisis could hardly be more glaring than when viewed through the lens of these two dueling headlines:

Bordeaux wine industry rallies to survive in US

and

Global Market Explodes with Huge Prices for DRC, Lafite, Pétrus, Harlan, and More as Hart Davis Hart Sells 100% of Lots for $3.5 Million

The first, from Yahoo News, reports that the American market for Classified Growths is so disastrous that “Some vintners have taken the unprecedented step of buying back their own wine.” Among these are such celebrated names as Chateaux Gruaud Larose, Greysac and even — Sacre bleu! — “the iconic Petrus.” The chateaux resorted to this desperate act to protect their wines’ image, “which can be destroyed by heavy discounting” expected when supply far exceeds demand. (All these moves followed ripple-effect like after Diageo, through its U.S. importer Chateau & Estates, “began aggressively liquidating tens of millions of dollars’ worth of [Bordeaux] stock at 40 to 60 percent discounts.”)

I don’t know if ever before in the history of Bordeaux the chateaux have bought back their wines from distributors in order to protect prices. I have read Eddie Penning-Rowsell’s “The Wines of Bordeaux” and seen nothing there of the kind. Can you imagine if, here in the States, Harlan, Colgin, Araujo and Screaming Eagle had to re-purchase their own wines after they already were somewhere in the market? (Never mind that most of them never see the distributor chain.) It would be shocking.

But how to reconcile this sad reality with that second headline, which comes via a press release from the Chicago wine auction house, Hart Davis Hart?

“Global Market Explodes with Huge Prices for DRC, Lafite, Pétrus…”

Drilling down into the details, “Eager bidders participated from 41 states, the District of Columbia and Puerto Rico, as well as Australia, Belgium, Brazil, Canada, China, France, Germany, Japan, Mexico, Norway, the Philippines, Singapore, Switzerland, South Korea and the United Kingdom.”

These seemingly opposite truths are, in fact, completely compatible. The kind of person who pays $71,700 for 6 magnums of 1982 Pétrus is not feeling any pain. And, rest assured, there still are plenty of such multi-millionaires. They are the bankers, high tech magnates, international businessmen and inherited-wealth crowd who are largely immune to the vagaries of the economy. The people who are hurting — who have turned with a vengeance away from buying Classified Growth Bordeaux in this country — are the ordinary middle and upper-middle classes who, in normal times, thought nothing of buying some Gruaud Larose to stash while drinking their Sonoma Cabs and Paso Robles Zins. Heck, even I used to buy Gruaud in the 1980s.

So Bordeaux is in free fall, at least here in the U.S., and “The 2007 [vintage] is basically unsellable,” a French importer-distributor told Yahoo News.

The Bordelais have apparently decided to try to do something about their declining sales. This article describes how “Bordeaux [is] courting new drinkers online and in person” by such tactics as a consumer-friendly website, enjoybordeaux.com, and “Bordeaux ‘MatchMaking’ events – tastings where people with similar wine preferences meet each other and try new wines” [see bordeauxmatchmaking.com].

If that smacks of stooping to conquer — a bit unglamorous and Madison Avenue-y for prestigious Bordeaux — well, it is; but desperate times call for desperate means. Look at it this way: At least we haven’t heard of Lafite, Latour, etc. hiring Social Media Managers! (Paging Monsieur Hardy Wallace. Please report to the Médoc.)

  1. Steve,
    I got a few calls, but lost interest when they insisted on paying me in futures ;)

  2. lol

  3. Hi Steve,

    I am amused by the dichotomy of these two headlines: winner takes all, looser gets nothing, which is counterintuitive because we’re referencing the same entity. These headlines are quite out of context and although I believe both are accurate, they need to be examined more closely.

    The first headline (or eulogy as the case may be) about Bordeaux demise in the US has a certain truth to it but pretty much only when it comes to new releases. Many buyers of futures for 2005′s ‘most incredible vintage in a century’ took a big bath financially, as much as 50%. Then as usual, the subsequent vintages are lackluster (in hype) compared to ’05 and no one is interested when, combined with a failing global economy, everyone’s standard of living is threatened or materially affected. While I agree that anyone laying out $71K for a case of anything is beyond reproach financially, these people are buying because they drink them (and for bragging rights) but there aren’t enough of them to really support the market. Bear in mind that the ’05 Bordeaux vintage alone released 950 million bottles.

    Although the ’06 Bordeaux vintage was not incredible, it also was not bad, especially with Classified Bordeaux, and was certainly overshadowed by the previous release. But the ’07 was not so great even with lower prices, so why would anyone be particularly interested? It would be like buying ’99 or 2002 Bordeaux – mostly good for cleaning clogged drains. The 1989 Bordeaux vintage was incredibly hyped too but many are now starting to realize the greatness of 1990, which too, was overshadowed early on. The point is there’s always going to be several vintages that get summarily dismissed until they become mature and then interest will rekindle. Which brings me to auctions.

    All of these auctioned Classified Growths (most all I should say) are from hyped vintages and are mature or approaching maturity so naturally they are going to command a much higher dollar because of demand and diminishing quantity. The ’61, ’82, ’89 ’00, ’03′ and ’05 vintages are always going to be big ticket vintages for Bordeaux, probably even long after they fade. The sad part of this story for me is that we have so much great Bordeaux leaving our country and to ever get it back will be very difficult even when, and if, the US recovers (and my glass is always half full). Emerging countries like China especially, and Russia secondarily, are paying insane prices for wine that, even as recently as five years ago, the Chinese were mixing with ice and Coke because they didn’t know any better. This is not an ethnic slur by any means, nor is it my intent to offend – it’s just a fact.

    So newly released Bordeaux is dead in the water, while mature and collectable Bordeaux is getting close to reaching its pinnacle in price where it left off in 2007 and may very well go beyond. If you have fifteen years to cellar your wine, now is the time to buy Classified Bordeaux. If not, it’s going to cost a small fortune to enjoy these wines but I have to say that once it hits my palate, money is the furthest thing from my mind.

    Respectfully Yours,

    David Boyer
    classof1855.com

  4. Although I agree that Bordeaux’s Third and Fourth Growths, in the U.S., are mainly purchased by the severely hit “ordinary middle and upper-middle classes”, I believe the relevant fact here is: 2007 is a bad vintage; and prices have to fall to reflect that.
    The problem is, after four good vintages in a row wineries/importers/distributors are not willing to accept a 30 to 40 percent loss of revenue. And to make things worse, the 2008 vintage looks even more dreadful.
    To illustrate that, the table below shows an index (Vintage Evaluator Index) that gathers yearly (growing season) temperature and precipitation data for the Merignac-Bordeaux weather station: a result higher than 100 means the year was warmer and drier than the average of the last 30 years; resulting in a good vintage. Values below 100 denote the year was cooler and wetter than the climatological normal.

    BORDEAUX-MERIGNAC
    2002 – 114,2
    2003 – 146,1
    2004 – 126,4
    2005 – 143,8
    2006 – 143,7
    2007 – 115,4
    2008 – 106,5
    2009 – 131,9

  5. Check this article out from BRane-cantenac…..http://www.brane-cantenac.com/blog-brane-cantenac/

  6. Peter, I like your index but it really doesn’t tell the whole story, rather it’s an average snapshot of only a couple of factors recorded during a growing season. If spring is cool and drier than normal (like in ’02), bud break and fruit set will be delayed, possibly impairing the growth, ripening, and yield of the grapes. And even if temperatures are above normal and rainfall is below normal but there is an unusually high number of cloudy days (again as in ’02), the grapes will fail to ripen properly. Or if most of the season’s rainfall unfortunately occurs around harvest the result will probably be thin, diluted wine. As you know, all of these things (and many more issues that would take a volume to discuss) will ultimately show up in the bottle, at least in Bordeaux they will. Other regions that take a more interventionist approach to winemaking can ameliorate a lot of what Mother Nature doles out in any given year, which is a whole other can of worms.

    Indeed winemakers from nearly every region try to quantify the growing season with a number and there is some general value in doing this from a tracking and historical standpoint. Napa does the same thing with their heat days, heat summation method, Winkler Scale, or whatever they’re calling it these days. The bottom line is the result of these indices do not mean the vintage was good but only that it was warmer and drier than usual, which can be misleading if not interpreted properly.

    With the ’09 vintage already gathering steam in the press as perhaps being better than ’05, I am very curious to see what happens with it and if indeed it really is great or just a PR attempt to prop up the region. We’ll know in the next couple of years I guess.

  7. Mr. Boyer,
    Thank you for your comment.
    You’re absolutely right when you say (statistical) indicators/indexes do not tell the whole story. They tell most of the story, though. And work quite well for cold regions like Bordeaux and Bourgogne. If you pay attention to the 2002 index number you will see that it reflected the nuances you mentioned.
    Robust quantitative indexes/indicators are, however, invaluable tools to support the decision making process; for example, employing an indicator with a consistent track record of forecasting accuracy and statistical adherence to value, forecast and trade Bordeaux Futures.
    Respectfully,
    Peter O’Connor

  8. Peter, I admire your work and thank you for your response – it is indeed important.

  9. Peter, your VEI index is quite fascinating. If I read it correctly, then 2007 and 2008 are still above average compared to a typical vintage in the last 30 years. So should I conclude that the bad recent vintages are at least better than those of the 90′s and 80′s?

    The interesting thing is I’ve seen a handful of ’08s with alcohol around 14% or so. I take that to mean heat hit late in the season and spiked sugars pre-harvest. So should we expect high alcohol without especially good phenolic development?

Leave a Reply

*

Recent Comments

Recent Posts

Categories

Archives